Most of the buz from the debate last night was Mitt’s “Gerald Ford” moment when he said that “Syria is Iran’s only ally in the Arab world. It’s their route to the sea.” It was a humorous gaffe, and it’s not the first time he has made this gaffe. He made this same claim multiple times in February and March of this year and despite being corrected, continued to make it last night. For those who don’t understand, Syria and Iran do not share a border and both countries have their own access to the seas. Remember how Iran threatened to cut off Iraq’s and Kuwait’s access to the sea? However, that is not the most serious blunder of the Romney presentation at the debate.
I was waiting to hear his previous talking points from his NeoCon and PNAC foreign policy advisors calling Russia our most serious “geo-political threat” and/or initiating more “nation building” by bombing Syria, Iran, as John Bolton would advise. Trillions of dollars more by committing U.S. troops in the region, but instead Mitt simply agreed with almost everything the President has already done in and for the region. He threw in his lies about the “apology tour” and not being a friend to Israel (all of which is easily disproven by a 5-minute search on the internet). But for the most part, Mitt debated Obama by agreeing and mimicking Obama current foreign policy.
He should have continued to mimic the Obama foreign policy and not disagree or place his own enhancements on it. Instead, he brought up his intention to “on day one” to declare China a “Currency Manipulator” to deal with those who also happen to be holding a lot of our debt, (thanks to the previous Republican Administration) by placing two wars, Medicare Part D, and Bush Tax Cuts on the Chinese Credit Card.
First of all, what is “Currency Manipulation”?
Currency Manipulation is when a country artificially keeps the value of their currency low, allowing it to move freely in foreign exchange markets and thus cheapening the price of that country’s exports.
In November, 2010 before the G-20 gathering in Seoul, there was speculation that the United States was going to declare China a Currency Manipulator under the Omnibus Trade and Competiveness Act of 1988. We had accused China of keeping its currency, the Yuan, artificially low by hoarding foreign reserves (including ours) in order to give Chinese exports an advantage over all competitors.
We have been “accusing” China of Currency Manipulation for years. Bush did it and so did President Obama. In February 2009, U.S. Treasury Secretary Tim Geithner indicated that President Obama “believes that China is manipulating its currency.” There was speculation that Obama would make the formal declaration per U.S. Law on the April 15, 2009 report to Congress. However, after due consideration, the declaration was not made.
What a Trade War with China Would Look Like (Forbes 2-2-2009)
The reason the Obama administration did not make the declaration in 2009 as pointed out by former Congressman and trade negotiator for the U.S., James Bacchus in the Forbes article above was that doing so would merely trigger a requirement for negotiations. If the negotiations failed, since both the U.S. and China are members of the World Trade Organization, under its treaty, China could sue the U.S. within the WTO alleging U.S. laws were inconsistent with WTO obligations. Had they sued and we had lost, it would have resulted in expensive economic sanctions harmful to U.S. exports to China. It could have cost us billions of dollars annually in lost trade concessions from China and thousands of American jobs. The potential unintended consequences of such an act could have created such a powerful economic backlash against us, at a time of a fragile economic recovery; we and the world could have slipped into another Great Depression. These are things intelligent and thoughtful Chief Executives of great nations must consider before taking any acts. Diplomacy and worldwide economics are much more complicated and nuanced than people realize.
So Obama took a different approach. He negotiated with the Chinese and since that time, though problems still exist, the trade balance has improved between the two nations and they haven’t called in the note for the money we owe them.
In May 2012, the U.S. Treasury declared that China currently does not meet the currency manipulator definition, but that they would continue to monitor the pace of appreciation of the Chinese Yuan. Their conclusion is based on the fact of the Yuan’s appreciation against the U.S. Dollar since June 2010 (when Obama was considering making the declaration and didn’t) and the decline in China’s current account surplus. China has committed itself to moving rapidly to a more market-determined exchange rate system.
Mitt Romney and Sensata:
Mitt Romney and Chinese Slave Laoor:
Now it is interesting that the man who pioneered job outsourcing to China, the man who marveled about the slave labor conditions in China, the man who personally netted over $15 million in Bain’s shipping of Sensata to China would now declare that he would be tough on China and declare them a currency manipulator on day one of his administration. He would spark a trade war with China as president instead of working within the State Department, WTO to curb the slave labor conditions in China and go after U.S. companies like Bain who get rich outsourcing jobs to China. Even those in his party are opposed to this action.
On October 21, 2012 Senator Marco Rubio on Face the Nation said he feared this would lead to a trade war. “I agree with Mitt Romney that China’s a currency manipulator, I believe that a trade war is not the right way to approach it and I think that if you label them a currency manipulator, that’s what it may result in. It would hurt American businesses.”
China is our third largest export market. Our exports to China have surged 542% from 2000 to 2011 and Obama’s goal is to double it by 2014. Per Business Insider citing Stephen Roach, (Yale professor and former chairman of Morgan Stanley Asia) if Romney were to be President:
If Romney were to take office and dub China a currency manipulator, the charge would necessarily under the Omnibus Trade and Competiveness Act of 1988, kick off “immediate high-level negotiations between U.S. Treasury officials and their Chinese counterparts at the Ministry of Finance. Not surprisingly, the negotiations stall and both parties blame the other in vitriolic press releases.
In early February after the first State of the Union address, The Defend America Act of 2013 (DATA) will be signed into law on President’s Day. The act will be “modeled after the currency manipulation “remedies” of countervailing tariffs first proposed by Senators Charles Schumer and Lindsey Graham in 2005” and China will be seen in violation of the new statute.
Negotiations between President Romney and Chinese president Xi Jinping and premiere Li Keqiang will fail and the U.S. will impose a 20% tariff on all Chinese exports to the U.S.
This would cause plant shutdowns in China and Beijing would declare this “to be and act of economic war” and would file a complaint with the WTO.
China would in turn impose 20% tariffs on U.S. exports to China, which would “hit growth starved America right between the eyes”. And Wal-Mart would increase average price increases of 5% and attribute that price hike to increase in tariffs on imports, other retailers would do the same and the American consumer would “hunker down further in response”.
“The stock market is hit by trifecta of a perfect storm—pressures on profit margins and expectations of lower growth and higher inflation. The bond market is clobbered by the sharp deterioration in inflationary expectations and by the realization that the Federal Reserve, with its zero interest rate policy, is seriously behind the curve.”
In response Washington “passes an amendment to DATA – upping the just-imposed countervailing tariffs on China by another 10%”.
China, the biggest holder of U.S. debt, retaliates by not buying any more U.S. debt. “Long-term interest rates spike, and within two weeks yields on 10-year Treasuries pierce the 7% threshold. At the same time, the dollar plunges and the U.S. stock market, which had already corrected by 20% in the first half of 2013, falls another 10% by the end of August.”
China also says it might consider selling U.S. treasuries if it has to.
The U.S. turns to foreign producers that are more expensive than China, delivering a blow to the country’s middle-class and by the fall of 2013 there is “little doubt of the severity of renewed recession”. Meanwhile, Chinese economic growth slips to below 6% and the country prepares for another massive stimulus.
This scenario would make 2008 look like a minor bump in the road. Further, this is very conceivable. This is why Obama hasn’t declared China a monetary manipulator and no one in the Treasury, no economist, and no one who sees and understands the numbers and potential consequences support such an act. They know this could happen.
One would think that Romney would understand this too. After all, he’s an international businessman. Problem is, he’s also a politician who’s playing to the lowest instincts of the low-information voters who make up his base in the Tea Party. Is what he is saying pure bluster for just the low-information voters? I doubt it considering that almost his entire foreign policy team is made up of PNAC, the same people who advise George W. Bush. They are famous for reckless foreign policy and Mitt is famous for doing the wrong things for the wrong reasons. He tried to show people last night that he was able, as governor of Massachusetts to work across the aisle. What he failed to mention was that as governor for four years, he vetoed over 800 pieces of legislation, over 740 of which were overridden by the Massachusetts legislature. Mitt didn’t work across the aisle; he was an ideological impediment to governance taking his cues from his social and political class. He would bring the same weakness to the White House.
This is 2012, Iran is contained, Russia is our trading partner (and nuclear power), China is a problem, but our hand in dealing with them is compromised due to years of borrowing from them and sending them our jobs via Bain. The worst problem is that of allowing them to continue to use slave labor. That should be the focus of our trade negotiations.
Mitt must be a lousy poker player. He plays bad hands and is incapable of effectively bluffing. He wants to play poker with our foreign policy with a pair of deuces and is betting the house. This country cannot afford this risk.